Issue 273 Business income tax alternative February 17, 2014

Finishing off the theme of taxation (I think I said that in the last issue, oh well) we are going to look at another model inspired by Herman Cains 999 plan and Paul Ryan's budget idea. The concept is simple, tax actual profit of a business, not the whole amount they make in a year. Reason, because what they make in an entire year is not profit, for profit is what a business makes after payroll, taxation and any and all other expenditures. So here is how it would work in concept.

Part 1: By using the procurement records for say furniture, materials, and equipment a business can easily subtract these amounts from the overall amount of money they take in. A simple example would be a furniture store. They buy various pieces of furniture from manufactures to sell adding on ten percent to the price they paid to make a profit. What is taxed is that ten percent that has been added on as that is the actual profit made. Simple right? So a furniture store buys a chair for $90 but sells it for $100. When sold the profit is ten dollars and thus that ten dollars is what is taxed. Yes my examples are simplistic, but this is how it works in real life if such system would be put in place.

Part 2: What also should be deducted is the workers salaries and the cost of their health care. Just like when a business procures equipment, a business also has to continue "procuring" the labor of their workers. As such, allowing their salaries to be tax deductible would go far and wide in helping that business meet its "real" bottom line in respect to profit. For our purposes the first $100,000 of each worker (not employer) is tax deductible. So if you have three workers making $20,000 a year, then the business owner subtracts that overall money from the money made to ascertain the overall profit. So if the business made $100,000 after all other subtractions, then subtracts for the three workers salaries the business owner would subtract $60,000 which leaves an overall profit of $40,000 to be taxed. If health care costs are factored into this equation then there would be much less money to be taxed as that means there was a lot less profit. This system allows for any and all expenses by a business to be accounted for without any special forms (such as those that exist in the existing tax code) as payroll and other expenses are already accounted for in the businesses everyday practices.

Why do it this way?: Simple, businesses are what make the economy move. The current tax code in America is a monstrosity that suppresses businesses and keeps only those that the government likes in power. By doing it this way instead of the status quo, it enables businesses a chance to actually grow rather than have their budgets squeezed by the current unfair tax code. Currently the majority of businesses pay the personal income tax as opposed to the business tax based upon its rate, complexity and how it stifles growth. Remember, the current business tax taxes the overall money a business makes, not the actual profit of the business which is why small businesses would be crushed under the current code. So switching to this method solves that problem. Likewise, the business tax should be considered the personal income tax on an employer to make it fair as the business owner being taxed again based on income makes no sense as the profit from the business is their income. This is yet another reason why small and medium sized businesses pay the personal income tax over the business tax so as to avoid this double taxation.

Conclusion: The goal is a simpler, learner and a more responsive tax code. This version eliminates all special forms and simplifies the code enough to allow business owners to be able to grow without fear of the tax code becoming more punitive. We need reform and if we really are going to keep taxes on businesses, then it must be done in this manner that prevents monopolies, and allows for business growth. It is time for real reform that works and this ladies and gentlemen is the best answer right now.

Issue 272 Whose left to tax February 14, 2014

Now that you have dealt with me and my two weeks worth of saying not to tax all these different people, your wondering who is left to tax? Who is going to pay the federal governments (and the State and local governments’ bills)? Well these exceptions leave only two groups left.

The progressive income tax: If you remember from Issue 267 Don't tax the poor, people making under $30,000 will not be taxed. Those making between $30,000 to $40,000 will be taxed a flat rate of $2,000 and those who make $40,000 to $50,000 will pay a flat tax of $4,000. Everyone else will abide by a traditional progressive income tax after that. In this case $50,000 to $100,000 will be taxed at ten percent rate. At $100,000 to $200,000 they will be taxed at 15% and anyone beyond $200,000 will be taxed at 20%. This is what it would look like at least at the federal level of taxation. Since the majority of the income tax is paid to the federal government by the top ten percent of income earners (80% of the money taken in from the income tax is from them) we should be well off there. Especially as cost cutting measures will still need to take place regardless at the federal level. State level wise, the States should abolish their income taxes all together. One of the most punitive forms of taxation is the income tax (no matter its form) and thus is the biggest inhibitor of business. There is a reason why the States like Texas and Florida recovered first after the great recession, it was because they had no State income tax. To make this work, there will be no deductions for things like charity or anything save loans that must be paid off. The poor will no longer need such things under this system as many people will no longer need such exceptions. This also insures that all the subsidies and exceptions that usually benefit the rich (70% of deductions usually help the rich rather than their intended target, the poor). Let us also not forget that paying the taxes (hiring an accountant) is costly with American citizens paying millions of dollars a year just to get their money in order. So there is plenty of additional savings to be had by simply not taxing these people and simplifying the tax in the first place.

Retail: With all those producers and individuals no longer being taxed, both the Federal government and the States must find an alternative. In this case it is a sales tax exclusively at the retail level. Yes, you are probably screaming at me saying, wtf to higher costs of groceries and other items you buy at retail stores, but here is what you are forgetting. You are forgetting that you will be keeping much more of your money as you are probably in one of those individuals that cannot be taxed. In addition, prices will already be lowered based upon how much cheaper goods become when the producers of those goods no longer have to deal with the taxes they used to pay. So overall, the prices "should" balance out with certain exceptions (those that do not follow supply and demand and those goods and services that are affected by other government regulations/bad businesses). In this case, the sales tax will be small in the realm of five to ten percent as the income tax will still exist. At the State and local level, the tax will probably increase as certain properties like those of seniors and of various institutions become nontaxable. But the benefit is that sales taxes on goods and services are not as troublesome to deal with. You can still use coupons to cut costs, and sales of the week will still happen. Also, there are more goods and services being bought and sold in the United States than we have as a population. As such, with the combination of this altered progressive income tax and this retail tax (all other business taxes should disappear) will more than make up for the lost revenue.

Imports and exports: Since the country began, imports and exports along with fees on the sales of foreign goods have been subject to taxation. We should continue this only on imports. If we want more money for businesses to expand, create jobs and thus by default generate more tax revenue, we need them to be able to sell any and all goods and services that they see fit. So we do not tax goods and services leaving the United States. All other countries do not tax exports as they know it will hurt businesses and thus they do not. This is one of the few times I say we should copy other countries. Imports and additional sales taxes on imported goods will make a lot of revenue (especially on cheap knock off products from other countries) and thus make up for any trade imbalances.

Land Sales: The final form of taxation that is left is land sales. Just as you are thinking it is a sales tax on someone buying a home. When the United States was first founded the federal government made a lot of money this way and only really fell short during the civil war. So taxing land sales in the same way you would at retail would be most beneficial.

Conclusion: As you know, I am a libertarian. You also know that I hate the income tax as a whole. However, I try to be a realist when I can. We cannot get rid of one form of taxation without replacing it with another. Also, we can all agree that the federal government (States and local too) need to trim themselves down. As such, I put forth the aforementioned in combination with my tax exceptions from Issues 263 to 271. My goal is to make it so that at some point we can eventually be rid of the income tax completely at the business level (which this idea almost accomplishes) and we cut down on the income tax as well by making it more regressive for the people on the lower end of the economic ladder and somewhat more manageable for those at the higher levels. Of course this will only work with a lot of budget cuts and reforms at all levels of government (most of governments functions can already be done by the private sector). Yes, we can make reforms and we can succeed in making a better more manageable tax code. By doing all this we can get the government monkey off our backs.

Issue 271 Don't tax the military February 13, 2014

We have another set of hero's to stop taxing and with good reason. Here they are.

Sacrifice: Our soldiers fight our wars for us. They are separated from their families for months putting strains on relationships that unfortunately end in divorce. If the money was not so tight, then this strain may at the very least be lessened enough to allow these couples in the military a better chance at staying together. We place our soldiers into battle, and it is our duty to give them support.

Medical: Due to the unnatural nature of murdering another individual, our soldiers who defend themselves and our nation suffer from stress and post traumatic stress disorder (PTSD). We try to help, but that help is not always enough. As such letting them keep more of their money would benefit them greatly. Also, let us not forget that some return from combat with missing limbs and deformities. By letting them and their families keep a little more of their income; it allows them to have more economic options when soldier’s benefits and charity are just not enough.

Low pay: Many of the grunts (our basic soldiers) have low pay. Many can survive on their own, but add a family into that equation and it becomes a struggle. Letting them keep more money aids them in having less strain on their marriages and their daily lives once home.

Conclusion: We really do not need a long explanation as to why these men and women in uniform should not be taxed by the federal, State or local governments directly. They deserve more than what we can give. Give them one less thing to worry about by not taxing them anymore for life.

Issue 270 Don't tax police and firefighters February 12, 2014

So let us not tax two very important groups of people. These groups are our Police and our firefighters (teachers and medical personnel are already included in my previous article Issue 266). So let me explain why.

Wear and tear: These men and women sacrifice much when it comes to protecting us from crime and fighting fires. They go through tough training and stress that taxes the body tremendously. Police are assaulted by criminals (especially corrections personnel) while firefighters run into a blaze to rescue us from harm. By the time they are able to retire, their bodies may become a mess.

They retire early: Because of this wear and tear they retire earlier than the rest of us. This is in the hope that there health conditions that are caused by the stress and the physical fatigue can be reversed or at the very least lessened. But sometimes their physical conditions lead to the need for medication or even therapy's of various kinds. Basically they may need long term care, but may still be wanting for money. As such, retirement may have to be put off or they may need a second job which may exacerbate any conditions that may have developed through the job. They need a break from what can only place more stress on them.

Self Sacrifice: Our police and firefighters do the job and do it well. Many are self sacrificing and even do the job to support their families. As a matter of fact, half the firefighters in the United States are either volunteer or are run by private companies. Also, some even work part time jobs on the side to just make a living. These men and women deserve a bigger break than just parades and fund raisers.

Conclusion: Given the aforementioned, these men and women in uniform are worthy of respect and admiration. By not taxing them we give them a monitorial advantage when it comes to dealing with health issues due to the job environment. If they are not taxed, then retiring early may not become as burdensome with respect to their economic needs after retirement. They are hero's who struggle day to day and thus do not deserve the burden of taxation. So let us stop taxing these heroes’s ladies and gentlemen.

Issue 269 Don't tax producers February 11, 2014

 
Producers are our farmers, the miners and other businesses that provide us with raw materials that allow for economic expansion. Here I will explain the idea to not tax them based on former presidential candidate Rick Santorum's idea.

Farmers: Farmers, whether industrial or traditional provide food for not just our country, but all countries around the globe. In America, farmers make up less than two percent of the population and yet still produce excess amounts of food that we export to other countries. Yet, the smaller farmers struggle. These smaller farmers who not just produce food, but materials for clothing, fertilizers and other materials from plant and animals struggle day to day with the market. They never know if another group of them will make so much of one particular crop that the price of there own crops may become worthless. There was even one point that a pound of potatoes was worth one penny. Economics plays a major roll in the price of goods from farmers and routinely puts many farmers into debt with no hope of paying it off. As such, by not taxing them, it reduces the chances of them being forced into the poor house. Yes that is correct, by not taxing these individuals (some of them are already receiving tax breaks already) it will allow them to make profit unhindered on their labor and therefore reduce the risk of them falling into poverty. Let us also not forget that by not taxing the farmers, some crops can be lowered in cost which makes them more accessible to people on a low budget like the poor. So there are advantages for everyone.

Miners: By miners I mean the guys (and sometimes gals) who dig up the raw iron, copper, and gold that comes out of the ground. These men and women provide us with all the raw materials that go into our houses, cars, roads and the like on a daily basis. If these people did not do their job, then who knows where our society would be? However, many of these people struggle. These businesses look to find places to mine once their first set of sources dry up. Not to mention they struggle with regulation after regulation all the while trying to keep their working environment safe and stay in business. Let us give these men and women a break and stop taxing them so that they can have one less thing to worry about.

Other producers: Other producers are our axmen who provide us with lumber to build homes and make things like paper. Mills that turn Iron ore into steel. Manufacturers that make parts for buildings and vehicles per customer demand. Basically, any job that makes a product that is not sold at the retail level provides us with the raw parts and materials needed for our economy to grow and strengthen. By not taxing them, we grow our economy, they struggle less with respect to looking for a contract, and it helps to reduce cost on those things they provide us. Again, we all win.

Conclusion: Overall, by not taxing the producers who find and cultivate the raw materials, and make the parts that are to be included into the final product, we give them an edge. That edge is in competing with foreign competitors, and with them being able to focus more on providing their essential services toward the economy. We gain because this makes goods cheaper, and allows start up businesses within this field to have an easier time gaining money and competing with their already established counterparts. So can we not tax these people who break their backs making what we take for granted?

Issue 268 Don't tax our investments February 10, 2014

Investments are a gamble. We invest in companies to get a return in the form of interest. Companies use the money in the same way they would a loan to grow and thus they create more jobs. The interest we get in return for our gamble allows us to acquire another source of income. Yet the money we put into the market and what we get out of our gamble is taxed. Here I will explain why investments should not be taxed.

First reason: As stated above, investments are a gamble. A successful business will earn people a profit, while an unsuccessful one will cause you to loose your money. However, all investing plays an essential service in all countries economies. It has become a driver of the market such that investments can even get countries out of recessions and depressions. For instance four of Americas recessions where solved partly or completely by reducing taxes on investments. These recessions happened during the Presidencies of Calvin Coolidge, John F. Kennedy, Ronald Reagan and finally Bill Clinton. Could you imagine how fast a recession would end if the taxes that inhibit economic growth were abolished? The economy would boom very quickly and recover in times of trouble even faster.

The second: Investments come in many forms. However I will separate them into two types for this article, those that are double taxed and those that are tax exempt. The tax exempt ones are things like a 401K where you collect at retirement. Here you get money taken out of your check before taxes and then taxed when you cash it out. Usually this stuff is used for retirement and if you have already read Issue 263 Don't tax seniors, you will know that taxing the retirement of any retiree is only going to hurt them. However, the other form of investment (double tax) is taxed first. So your paycheck is taxed and then after you used your already taxed money to buy stock and invest you get taxed again on whatever you cash out. So in this instance you are being taxed twice. The first is on your income and then again on what interest you earned upon getting money off your investment. Double taxation is the only way to describe this theft. By taxing people twice you inhibit their ability to both spend and earn money. It basically makes them squeamish about buying even the essentials. Also, it inhibits people from going after money making opportunities like investments as they feel pressured by the additional taxation.

The third: It frees up the job market. How you might ask? Simply put, it takes people out of the workforce which allows for more job opportunities for everyone else. Basically, those who get rich off stocks do not have to have a job as their "new" job now is investing which allows business growth. Meanwhile, a job they would have occupied based on their skills is now open for someone else to take. Investing also allows some people to retire early and again this frees up jobs as their former employer will need someone to take their place. Social Security was partly invented to get the seniors and people who could retire early out of the job market so that lower skilled labor can take their place while higher skilled labor can move up and earn more income. So we should not care how much an individual makes earning stocks, for the fact is that we should be thanking them for advancing our economy and getting out of the job market to make way for everyone else.

Conclusion: So we have three main reasons to not tax investments. The first, that investing grows the economy and as such taxation of investments hinders economic growth and recovery. Two is that some individuals are taxed twice, once on their income and then again on their investments, which is clearly not fair to the individuals being taxed. And finally the third reason is that it frees up the job market by getting people out of the labor pool which allows other job seekers a chance to work and earn a living (i.e. it can help alleviate poverty in some cases). So I say let us not tax this economic tool that drives our economy. The advantages are clear, so quit taxing investments.

Issue 267 Don't tax the poor February 7, 2014

Yup, the poor are taxed. Well in America, by law it seems that anyone making more than $30,000 a year is considered rich with anyone making less than $20,000 being poor (I have no idea what the in between is, this is the federal governments definition, not mine). What needs to happen is a regressive tax system that allows the poor more economic opportunities. So here is my solution, don't tax them!

The taxed poor: Every year at the federal and the State levels of government the poor are taxed on their income. Further, the State and the local government may also tax them on their property. Usually they get some of this money back in the form of welfare which I find ridiculous. If you are just going to give them the money back (though not always as money and even then it may be less than what they were taxed on) then why take it from them in the first place. Essentially why the heck are you impoverishing them further and limiting their economic options.

My idea: I steal this idea from the progressives (people who believe in one of the many forms of socialism) from the early 1900s. They (including President Woodrow Wilson) only taxed the top income earners in the country when they pushed for the 16th Amendment to the United States Constitution which allowed for direct taxation on individuals. For their purposes, only the top one percent was initially taxed to make things “fairer” (later on everyone was taxed). But for my purposes of removing direct taxation we would not tax anyone making under $30,000. With $30,000 being considered rich, it is an acceptable number at which to designate the threshold of what amount of income is taxed. This allows for regressive taxation at the mid between of the poverty line and below. As such, the poor would be able to earn more money without fear of reprisal of the tax code. Right now, many of the poor fear going over the poverty line because their welfare will be cut off. This decreases any incentive to work. But if they could keep more money in their pocket to the point that they make more money than they would have gotten under welfare, it incentivizes them to get out of poverty. This also reduces the number of people who need welfare as only the most desperate and impoverished will need some form of aid. So the only ones who would get welfare are a select group that absolutely need it most and that is only if they fall into a category where they cannot work do to a physical or psychological condition, or they are so impoverished that they are incapable of feeding themselves (or at least this is the goal with respect to not taxing the poor).

How it works: It is fairly simple. For one, anyone making under the $30,000 mark will not be taxed (adjusted each year for inflation). People will still need to file taxes each year to demonstrate how much they are earning per year however. If they go over the limit, rather than a tax based on the progressive income tax, they will pay a flat rate fee regardless of how much they went over up to the first $40,000. In this case I would have that fee be $2,000 with an entire year given to them to raise that money to pay it (even if it is in installments). This insures that if they for any reason made that extra money, they will not be taxed back down into poverty. To ensure there is an incentive to go even further up the income ladder, if the person makes over $40,000 to $50,000 they will only be taxed $4,000. Thus this eliminates much of the issues with respect to transitioning out of poverty and the welfare cycle and into earning ones own living. After the $50,000 mark however, the regular progressive income tax kicks in once again.

Weaknesses: This idea may still suffer from the issues of dependency. People may still require welfare do to them not wanting to work, and the idea I propose may still have disincentives to get out of poverty. My plan does however give a major tax break to anyone making less than $50,000 a year which is good for a majority of people and helps out the more economically capable of the poor in getting out of poverty. It unfortunately does not completely remove the need for certain people on welfare. While yes there are a good number of people on welfare that if they were not taxed, then they would not need welfare to live comfortably. However, there are still individuals who will lack means of getting out of poverty whether it is due to education, job loss, physical/mental ailments or just stigma from say prison time or other similar factors. Much of that can be handled by special programs that provide unemployment benefits combined with job training and education opportunities. Unfortunately, people will still slip through the cracks and be stuck on welfare such as the most disabled physically and mentally or those who cannot overcome the stigma society places on them. But, my idea is made to help the majority of the people so that they are not forced into the welfare office in the first place. In short, it is so that the only welfare required would be those for the unemployed and those completely unable to take care of themselves.

Conclusion: So this idea is about more than not taxing the poor, but giving them the opportunity to get out of poverty and the stigma it places on them by society. It is designed to be regressive at the lowest income levels so that people have a chance to make and keep more of what they earn. The more they keep, the less likely they will need any form of government assistance. So why don't we quit taking money from the poor just to give them less money back or the equivalent in lower quality support. Let them keep all of what they earn and only help those at the lowest of the low. That is the way to raise people out of poverty and get them off welfare, hopefully for good.